Article
Should I franchise or grow organically
July 30, 2024 · Authored by Brian Campbell, David Foster of Foster and Associates
For successful restauranteurs, the desire to grow is usually strong at some point. Growth brings opportunities and potential financial gains, but also challenges. In order to minimize risk and maximize the rewards associated with growing the number of restaurants one has, they must first determine how best to achieve that growth.
There are three basic means of increasing the number of units a restaurant brand has:
- Open more company-owned restaurants
- Strike licensing deals allowing others to use the brand, or
- Become a franchisor and expand through franchising
Each method has its own set of pros and cons. Let’s take a deeper look into each of these scenarios. First, let’s look at the parameters for any form of restaurant growth. When opening additional units, make sure to have a solid foundation in place, which include the following:
A clear understanding of financials
Owners need to have a solid working knowledge of the fundamentals of the restaurant business and their restaurant’s financial performance. Engaging outside support from a professional accounting team or restaurant consultant can help owners and executives better understand their own financials and put systems in place to monitor critical key performance indicators.
Financial strength
Strong performance in existing unit(s) is a necessity. By that we mean solid sales, acceptable profits, positive cash flow and solid financial controls.
Growth potential
Does the concept have “legs”? By that we mean a concept that has the potential to continue or grow in popularity with the target audience well into the future.
Replicability
The concept needs to be able to be replicated in different locations while still preserving the essence of what makes the brand unique.
Systems
The systems needed to replicate the performance of the first restaurant must be in place before next steps can be taken to grow the brand. These systems are critically important:
- Menu - The menu should be well thought out, costs and pricing updated continuously and all recipes and procedures should be documented.
The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.
